Taiwan's worst espionage case in 50 years and its failure to track the mainland's next generation stealth fighter jet J-20 project indicate that the island's military intelligence capability lags far behind that of its main political rival, military experts say.

The arrest of Taiwanese army major general Lo Hsien-che on suspicion that he was spying for Beijing was another slap in the face of Taiwan's intelligence establishment a month after it mistakenly denied that Beijing was ready for a maiden test flight for its J-20.

On January 5, Shen Yi-ming, deputy chief of the General Staff for Intelligence at the island's Ministry of National Defence, told the Legislative Yuan that the authenticity of pictures posted on the internet by mainland military enthusiasts about a prototype of J-20 was 'questionable' and Beijing was 'incapable of producing a new generation stealth fighter jet' or conducting a maiden test flight.

However, six days later, a prototype of J-20 made its first known test flight in Chengdu .

Like a scene from a spy movie, Lo, now 51, was set up for a honey trap involving a 'tall, beautiful and chic' mainland woman, then in her early 30s, while stationed in Thailand between 2002 and 2005, according to the island's media reports.

Lo started passing secrets to her in 2004 and was reportedly receiving as much as US$1 million from his mainland handlers. He was arrested late last month and became the most senior Taiwanese officer accused of espionage in more than two decades.

As head of the army's telecommunications and electronic information department, Lo reportedly leaked details of Taiwan-United States military programmes, including the NT$50 billion (HK$13.28 billion) Po Sheng defence system Taipei is purchasing from US defence contractor Lockheed Martin, and other projects.

It was not clear how much intelligence Lo had provided to Beijing, and whether the joint US-Taiwan military programmes had been compromised, but military experts believe the scandal has hurt Taiwan's relations with the US.

'This case would definitely damage our relationship with the US because of the sensitive information Lo had provided to Beijing,' said Lin Chong-Pin, a former deputy defence minister. 'If our relation with Washington is weak, the Taiwanese army is incapable of confronting the People's Liberation Army when it invades Taiwan.'

The espionage case sent shock waves across the island, but Lin said he had expected such a scandal many years ago due to the intelligence imbalance between the two sides.

'It's a fact that the mainland's intelligence system has been better than Taiwan's since the civil war as Mao Zedong was very good at sending young spies to detect Chiang Kai-shek's activities. Chiang, on the other hand, didn't realise the fact until he came to Taiwan,' he said.

'Taiwan's intelligence mechanism became a big problem during the eight years of [the Democratic Progressive Party's] administration, with many retired generals being allowed to visit Beijing freely.'

Retired Taiwan army general Hsu Li-nung had reportedly led dozens of retired generals to pay frequent visits to the mainland since 2005, raising concerns that it would send the wrong signal to the island's soldiers and officers that 'Beijing is not any more their biggest threat'.

Former intelligence chief Ting Yu-chou also made a 'private visit' to the mainland in September last year, according to Hong Kong's Yazhou Zhoukan weekly. Ting was in charge of the island's two key intelligence bodies - the Presidential Office's National Security Council and the Military Intelligence Bureau under the Ministry of National Defence.

No military officials from the mainland's intelligence bodies visited Taipei.

In late 2009, Li Jijun, 77, a former lieutenant general and vice-president of the PLA's Academy of Military Science, and Major General Pan Zhenqiang led a 'united front' delegation to Taipei to attend a 'cross-strait military exchange' seminar. They are the highest ranking mainland military officials to visit Taiwan.

Antony Wong Dong, president of the International Military Association in Macau, said Lo's case showed Beijing's capability to infiltrate Taipei's core intelligence network.

'The US hoped Taipei's intelligence staff could help them collect information from Beijing because it would be easier for the Taiwanese to spy on mainland authorities because they have the same language and culture,' Wong said. 'But Lo's case and Taiwan's unawareness of Beijing's development of J-20 made the US side very disappointed.'

Wong said he was surprised by Shen's assertive conclusion on the J-20 last month because he is one of the most senior officials overseeing the island's intelligence system against the mainland.

'Even the US officials didn't make such an assertive conclusion,' he said. 'Why did Taiwanese officials fail to exchange or share information about Beijing with the US?

'Shen's comments and Lo's case showed us that the whole Taiwan intelligence system has slacked off since former president Lee Teng-hui's localisation policy, which encouraged staff to focus on the island's defence and ignore mainland spy work.'

Wong said former president Chen Shui-bian's defence policy in marginalising non-Taiwanese native military officials had further demoralised the army.

'Lo is a non-Taiwanese native. He was recruited by Beijing in 2004, which was the peak of 'nativism' in the island's military history, with a lot of mediocre native officers being promoted,' he said.

Wong added that a series of scandals had rocked the military establishment since then, including sex scandals and embezzlement by senior officers.

Taipei-based political commentator Paul Lin said President Ma Ying-jeou's mainland-friendly policy should share the blame.

'Under President Ma's Beijing-friendly policy, officials are sending the message to the public that the mainland is a saviour of Taiwan's poor economy, not the biggest threat to Taiwan any more,' he said.

'The top priority of Ma's administration is to improve cross-strait economic and trading [relations], not national defence.'

However, Shanghai-based military analyst Ni Lexiong said warming cross-strait relations had never prevented the two sides spying on each other. 'Espionage activities have never ceased, even though cross-straits tensions have eased since Ma Ying-jeou was elected as the island's leader in 2008,' he said.

'Cross-strait relations could change if the DPP comes to power in next year's presidential election.

'For Beijing, the target of espionage also includes the US as it is the biggest arms supplier of Taiwan.'